Outreach and the Financing of Microfinance Institutions - MICFI

Coordinating Institution: Université du Luxembourg
Other Partner(s): Appui au Développement Autonome
From: 01/03/2009
To: 28/02/2011
Budget: 82,000.00€
Contact(s): Hamadi Malika

Progress Summary 2009

Microfinance institutions (MFIs) provide very small loans and deposit services to clients that are predominantly poor and excluded from the formal banking sector. The Microfinance sector has grown dramatically over the last ten years, currently serving over 100 million households globally, compared to 10 million households in 1997. This level of outreach has been possible thanks to a remarkable mobilization of funds – nearly $20 billion dollars- towards microfinance start-ups, by governments, development agencies, non governmental organizations and charitable foundations. In the long run, however, donors and governments are likely to reduce funding, which raises the question of whether or not subsidy-free programs and financial sustainability would be desirable. In fact, in recent years, microfinance institutions have experienced easier access to capital markets thanks to an increasing institutionalization of the sector, with a tendency towards more transparency, availability of quality data, public reporting, standardization of financial ratios, ratings, and meeting of regulatory requirements. As a result, a major development has been the rise of microfinance investment funds (MFIFs), which are pools of suppliers of funds who collectively invest in a diversified range of MFIs. These new financial intermediaries have been instrumental in attracting a wider scope of providers of financial resources for MFIs, including private and institutional investors. However, the requirements of these new providers of funds are likely to encourage MFIs to evolve into true commercial entities. Therefore, a main concern is whether or not financial sustainability and the recent changes in the financing structure of microfinance institutions come at the expense of undermining their social objectives. The present research project speaks to this question. We propose an empirical investigation of the causal impact that a broader access of microfinance institutions to different sources of capital has on the lending properties of these institutions. Currently we are working on data collection and analysis to address the questions we raise in this project.